China’s overreliance on real estate has sent its economy tumbling toward 2008-era financial conditions, Kyle Bass told CNBC on Tuesday.
“This is just like the US financial crisis on steroids,” the Hayman Capital founder said. “They have three and a half times more banking leverage than we did going into the crisis. And they’ve only been at this banking thing for a couple of decades.”
The years of double-digit growth China enjoyed prior to the pandemic were made possible by an unregulated real estate market, Bass noted, which leaned too heavily on debt to expand.
With defaults now plaguing the industry, this spells massive trouble for the country’s broader economy. The real estate sector makes up around a quarter of the country’s GDP and 70% of household wealth.
“The basic architecture of the Chinese economy is broken,” Bass summarized.
In fact, virtually every public or listed Chinese developer is currently in default, he said. Two of the biggest, Evergrande and Country Garden, have a collective debt of $500 billion. The former was recently ordered to liquidate by a Hong Kong court, and its collapse is sparking fears of systemic risks to come